3 Essential Things to Know About Settlement Agreements

What Are Settlement (formerly Compromise) Agreements?

Settlement agreements are a valuable tool used by employers to settle legal disputes that employees may have against them. They are predominantly used when an individual’s employment is coming to an end. In brief, the employer “settles” any claims that the employee may have against them by making an agreed-upon payment to them. In return, the employee is not allowed to bring any claims against their employer once the agreement has been entered into. Claims can range from unfair dismissal and discrimination to bullying or harassment.

Settlement agreements have become increasingly common so the clauses provided are often standard. Many cases involve straightforward agreements where there is, in fact, no claim against the employer. However, it is still important that the settlement agreement is reviewed prior to being signed as it is a legally-binding contract that will restrict the employee in more ways than one.

After Entering Into A Settlement Agreement, Can Employees Bring Legal Claims Against An Employer?

In short, No.

Settlement agreements prevent employees from bringing the majority of their claims against their employer. However, Erik H. Gordon notes from experience, that an employee may still present claims relating to:

  • Any work related injuries of which the employee is not aware of on the date that they sign the agreement at the very least;
  • Any accrued pension rights;
  • Any claims arising from a breach of the settlement agreement itself such as not being paid any termination payment;
  • Any share options (if applicable).

It is always good practice to ask an attorney if you have questions or concerns about the above-mentioned matter.

Do Employees Have To Sign A Settlement Agreement That They Have Been Given?

No.

It is up to the employee to decide whether he/she wishes to enter this agreement and drop any claims that he/she may have. If the employee does not decide to enter into the agreement, he/she technically remains in employment until it is terminated through an alternative method, such as redundancy or dismissal, and he/she has been formally dismissed.

Typically, the employee will receive less or no money if his/her employment is terminated by one of these methods or the employer becomes insolvent.

Taking this into consideration, it is highly recommended that employees consider both their and their employer’s circumstances carefully before making the decision to enter a settlement agreement.

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